The demographic of borrowers who are taking out reverse mortgages has gotten much younger, and these younger borrowers are the ones who make up the bulk of reverse mortgage delinquencies, reports a U.S. News & World Report article.
Growing numbers of delinquencies have prompted an industry movement toward implementing a financial assessment for applicants to assess their ability to pay ongoing property charges.
“With rising numbers of seniors expected to use reverse mortgages in the future, creating a more sustainable lending process has become a priority,” the article says.
The article cites data from government housing officials showing that as of July 2011, 46,000 home equity conversion mortgages (HECMs) were reported as delinquent, more than 50% above earlier industry projections, it says.
This means that 8% of all HECMs are delinquent, and through July, lenders had advanced about $250 million on delinquent loans, only $40 million of which had since been repaid, U.S. News says.
Despite an increase in the number of delinquencies, most of them are for relatively small amounts, with more than 40% owing less than $2,000, the article reports. Only 5,300 loans—less than 12%—have delinquencies greater than $10,000, although they account for $91 million in outstanding lender advances.
The trend of younger reverse mortgage borrowers, aged 62 to 65, stems from the recession, Federal Housing Administration officials told U.S. News.
“This group is more likely to be delinquent than older borrowers, with most delinquencies occurring in the first four years of the loan,” says the article.
To curb delinquency issues, the FHA introduced a special counseling program for defaulting borrowers, although participation is still minimal and the success of repayment plans is unclear.
“Maybe only about 10% of those [delinquent borrowers] have gone through counseling,” Barbara Stucki, vice president for home equity initiatives with the National Council of Aging, told U.S. News. And, she added, the ability for borrowers to stick to repayment plans that are developed through counseling is limited, as most are on fixed incomes.
The FHA has yet to release industry-wide guidance for borrower qualifications, but many lenders have implemented underwriting guidelines issued by the National Reverse Mortgage Lenders Association, and one major lender has created its own financial assessment.
Check out the full U.S. News & World Report article here.
Written by Alyssa Gerace